Get the Anti-Startup and Anti-Angel Provisions Struck From Dodd's Banking Bill (davidblerner.com)
There is a rather large missile rapidly approaching America's innovation culture. Predictably, it has been hurled in the most careless of manner by a group of uninformed politicians and their staffers in the form of Senator Dodd's sweeping Banking Bill. Putting aside the merits and thrust of the Bill itself, (which ostensibly seeks to regulate the banking industry), there are two provisions in it which, if not removed ASAP, will essentially wipe out a large chunk of one of America's engines of innovation- namely angel investing. These provisions will raise the bar on the definition of an 'accredited investor' from $1M in net worth or $250K in annual income to $2.3M in net worth or annual income of $450K! It will also hamstring angel investing by slapping any such investment with a 120 day SEC review.
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[ 3.1 ms ] story [ 73.4 ms ] threadhttp://www.coffeehousetalks.com/2010/03/landmark-day-for-edu...
That "bureaucracy" was a private industry. Now it's gone.
I'm not aware of any claims that this will result in a net loss in loan administration headcount.
I'd likely still use tax-prep software, but I'd like the option to file directly to the irs without an intermediary trying to charge me for services.
I guess that would be another "government takeover." :|
I'm talking about the necessary people, wherever they are, who then have to process the paper work, deal with random out of band requests, dun people who don't pay up, etc. etc.
That work has to be done somewhere (unless you prefer the model of Medicare with it's low, low overhead and insane level of bogus claims).
Government airline pilots. Government Facebook employees.
No netloss of headcount has nothing to do with it being a takeover or not. It does in fact matter who the employees work for.
But those jobs marketing a government backed loan shouldn't have existed anyways, no institution was taking a risk to earn that interest, it was a legally created market distortion -- so whatever.
Are you seriously arguing the side of a bunch of middle-men who provided no value, saying it's too bad that their industry is going to disappear?
Wow. And I bet you spend the other 364 days of the year talking about how the private sector is so superior through survival of the strongest and all that.
Buried inside of the new banking bill is a provision that will raise the requirements to be an accredited investor. The new bill is proposed by Chris Dodd, the senator from Connecticut. The requirements are increasing from $1m in net worth or $250k in annual income to $2.3 million in net worth or $450k in annual income. Angel investment will also have to undergo a 120 day SEC review.
http://hnsummary.com/2010/03/30/get-the-anti-startup-and-ant...
You're forgetting that most of those folks also have hefty mortgages, so their net ownership of their houses is considerably less than the value of their house. (I doubt that the median price of houses in the valley is high enough that "virtually all" are worth >$1M.)
However, none of this matters because the definition of "net worth" used for determining whether someone is an "accredited investor" specifically excludes many things, including residences.
There's a huge drop-off from $1M to $2M in assets, no matter how defined. These things obey power laws.
$2.3M is that amount adjusted for inflation.
You can make a case that the $1M limit was too low (at the time Reagan signed the bill), but imo it doesn't make sense to argue that - in general - any limit should not be adjusted for inflation
The figures quoted are pulled out of their hat -- they just took the old figures and adjusted for the last 30 years of inflation since they were set. Nothing in the bill says the SEC has to do that.
Watch what they do, not what they say....
I for one am at a loss. Someone is writing these provisions and getting them into the Dodd bill. The questions are who and why.
If I were to assume this was tied to the proposals to regulate VCs as ostensibly major economic players that pose systemic risks (insane on its face, since they're too small and their time frames are too long), then it could be part of a general anti-disruptive business thrust.
That's what zapping the junk-bond market was all about (details upon request). In this case it could be an attempt to make sure there are fewer little mammals to eat the eggs of existing dinosaurs and drive them to extinction. The Internet is certainly acting as a massive disruptive force....
But the above musings are very vague, I don't see a tighter cause and effect, just a couple of data points. But provisions like this aren't put into bills randomly. Someone thinks they're a good idea for someone (not necessarily the nation).
Maybe they want to devolve this to the states? There are strong incentives for that to happen in the bill, but I can't see how that would be a good thing for the nation, and it's not like the SEC is really overworked.
I think the main reason they're changing the definition of "accredited investor" is because it also affects who can invest in hedge funds, not because they're trying to affect startups per se. This is probably classic "unintended consequences."
Just so I understand: If I've got 250K in the bank- this would prevent me from doing 10K ycombinator style investments without jumping through massive SEC hoops?
See grellas's excellent summary from a few days ago:
http://news.ycombinator.com/item?id=1221387
As absurd as it seems, laws like this don't come out of nowhere just to make people's lives complicated and miserable: the SEC registration requirements are there to prevent scam artists (of which the 20th century that saw rise to these laws saw plenty), and the accredited investor regulations are a way to clarify the exemptions to those requirements.
As an aside, I think most people on this board have a 'everybody is decent and nice' goggle on. Probably why we're the ones getting ripped off by everyone else.
The SEC registration requirements seem like they will cause a lot more trouble.
(One should also be cognizant of Buffet's "when the tide runs out, you see who's been swimming naked". While I don't think he meant it in this way, "genius is a rising market" and when the market goes down a lot of scams are driven out into the open because they can no longer keep their game afloat.)
In general, great efforts have been made to paint hedge-funds as eeeeevil, but with little to no evidence that I'm aware of (note Madoff was't running one ... in fact, didn't he make a big deal about his very low management fees?).
And I don't see how this is related:
The ostensible purpose of this legislation is to decrease systemic risk.
Preventing smaller investors from making necessarily small investments in whatever by definition isn't going to have much effect. The issues are big numbers, not small ones. And how does the 120 day delay fit into this???
Devolving the regulation of these investments to the states might in theory help, not that the SEC is a whole lot more useful than a potted plant (cd Madoff).
Regulating VCs as hedge-funds makes no sense whatsoever (that's not a point you're making, but I can't help but wonder if they're related).
Off the top of my head: Wextrust. http://www.nytimes.com/2008/08/12/business/12wextrust.html
I actually did some contract work for them in 2007, shortly before they were busted. I was never paid beyond my retainer. I found out why it was so hard to collect when the story broke in Crains Chicago. Normally I'd fight to get paid but they're now in receivership and I don't feel like taking scraps from charities and individuals who were wronged for so much more than I was.
edit: I understand that's just an anecdote, not real data. Basically media coverage is rare if the scheme is less than $200 million. There are some larger ones that never get attention because very wealthy people get taken and don't want to be made fools of for investing into these companies. I've got friends who work in the real estate business who've told me about several in the Chicago area that have been taken down or are under investigation. It was shockingly widespread, and I'd estimate there's easily thousands active worldwide.
Here's an incomplete list of ones that made the press in 2009: http://madofffraud.boomja.com/Ponzi-Schemes-Reported-in-2009...
I could probably dredge up a few more -- it seemed like there was one every two weeks from July 2008 - Feb 2009, so these are just the few who were based in the US and who have Wikipedia articles.
While the financial reform is mainly being marketed as a fix for systemic risk, there's also a fairly strong contingent of people who want it to address various consumer protection issues such as predatory lending, failure to disclose fess, etc.(Mike Konczal has been following this carefully at http://rortybomb.wordpress.com/ ). While this effort is stalling, some of their suggestions will still probably make it into the bill. Basically, the politicians want to be in a place where they can say that only "the very rich" are in danger of getting ripped off by hedge fund scams.
The challenge here is that all issuance of securities is lumped into the same category of speculative investment by regulators. This might actually be a good time to try to break off a special category for investing in startups that is separate from the normal "accredited investor" requirements, perhaps by capping the amount anyone can buy as a percent of income(10%?) or assets(5%?). Since the main argument for these things is that each individual investment is too risky on its own, adding this sort of requirement for mandatory diversification might be good enough to get a regulatory carve-out for startups.
Please note that I personally oppose nearly all restrictions of these sorts -- I'm just trying to present the arguments of the regulators and to advance some plausible things to lobby for. It's worth keeping in the back of your head that if publicly-traded common stock was invented today as a novel financial instrument, it would be judged by regulators to have such an idiosyncratic cash flow profile that only financial institutions would be allowed to invest in it.
If you are going to have a minimum amount needed to be an "investor", why would that amount not be pegged to inflation (which is what the provision does)? What is the rational argument for having the (real money) amount needed to invest fluctuate based on inflation as it works today?
There may be an argument for removing the minimum or changing the structure, but just having it stay at "one million dollars" for decades seems absurd.
When looked at as a package, your point isn't sufficiently explanatory.
Just because 1m buys less food than it did 20 years ago doesn't mean it can't finance a similar sized business. You can do more with less - there is much more leverage available with computers, SaaS, outsourced manufacturing and online sales than was available in the past.
I don't see any reason why starting a business won't be even easier in 20 more years.
Most expectations are that Wall street will spend tens of millions of dollars against the bill